Rule-makers in the European Union recognized that, in accordance with the principle of proportionality, the same reporting obligations should not be imposed on all companies. All large companies will be subject to the new obligations, while small and medium-sized companies, as a rule, will not. One exception is one group - small and medium-sized companies listed on a regulated market. Regulators felt that these companies are subject to broader reporting obligations than private companies anyway, so they can also be required to report sustainability information.
The same principle of proportionality underpinned the legislation under which EFRAG will prepare, and the Commission will issue in the form of delegated acts, a special set of simplified standards for listed SMEs. In jargon, we refer to these as the LSME standard (from listed SME - listed SME). It is worth remembering that the basic principle is for listed SMEs to use the ordinary standards (those for large companies), but such companies can (if they wish) report according to this simplified LSME standard.
The draft LSME standard has been in the process of difficult negotiations for several months. The negotiations are difficult because the standard will not only serve a relatively small group of listed SMEs across the EU, but also has another important function. That's because the directive stipulates that standards for large companies should not require them to report such value chain data and information, particularly from non-reporting business partners, which those partners would not have to report if they were subject to the obligations set forth in the simplified standards for SMEs. The LSME standard will thus establish a kind of information cap above which large companies should not go in expecting their smaller business partners to provide data.
SME organizations in Europe have been pushing EFRAG and the Commission for many months to also create and issue a voluntary standard for unlisted SMEs, i.e. those not subject to the obligations of the directive. We have provisionally named it the VSME (voluntary SME) standard. This standard would not be issued in the form of a delegated act (there is no basis for this in the directive), but could take the form of a communication encouraging private SMEs to use it in reporting. I have been against the creation of such a standard from the beginning, because it would in practice confuse companies. Their large business partners would not be interested in the scope of the VSME standard, but would still be expected to report such information that falls within the information limit set by the LSME standard.
What about micro-enterprises? They are completely outside the scope of the CSRD. However, it is to be expected that large business partners will expect them to provide information and data, just like SMEs. At the last Sustainability Reporting TEG meeting, we developed the idea that a voluntary micro-standard should be created for micro-enterprises. It would boil down to an indication of a dozen or more numerical indicators that such a micro-enterprise could prepare on the basis of the data it has, and which could be published once a year for all stakeholders, including large business partners. If it would take no more than a few hours to prepare a 1-2 page compilation of data, this is probably within the capabilities of any microenterprise.
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